| The Intermarket Report April 4, 2008 |
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| Written by Matt Caruso CMT | |
| Monday, 07 April 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsApril 4, 2008 Inter market confirmation of U.S. stock market lowAs the market sold of heavily several weeks ago I turned bullish and provided several reasons why I believed the market would climb higher as you can read here http://tradesystemguru.com/content/view/165/58/. The majority of market participants were bearish, commercials were buying and the time of year was right, it was just what I was waiting for. This week I believe the transports, the Swiss franc, the Japanese yen and the VIX are all telling me that I was right and that the U.S. market has bottomed and is ready to climb substantially. Although most recent articles have pertained only to a signal market, I believe that a truly inter market message is coming through loud and clear this week. One tool that I think is very important to watch is Dow Theory. I know many will think it’s out dated but I want to point out how it gave a sell weeks ago before the market sold off. We are now very close to a Dow Theory buy signal. Firstly I want to point out in figure 1 that as the Dow Jones Industrial Average almost retraced completely to the January low recently, the Dow Transports retraced only 50% and have since climbed higher than the February highs carving out a beautiful head and shoulders bottom and in the process signifying a great amount of demand for transport stocks. I think this is a sign that any U.S. recession, if it occurs, will be rather short lived and good times are to come. Why else would transportation stocks be climbing? You don’t ship more, but less in an economic slow down. A climb for the Dow Industrials above 12767 would confirm the market bottom and give a Dow Theory buy.
Figure 1 chart by genesisft.com When I want to know the world’s appetite for risk I look to the Swiss franc and Japanese Yen, which you can both see in figures 2 through 5. As you can see in figure 2, the Swiss franc had an upside bullish breakout just about the time the market was topping. The Dow industrials made a higher high in late 07’ before falling over but smart investors were all ready shifting their money to a place where they’d be protected in a bear market in U.S. stocks. As you can see this shift to the Swiss franc and Japanese Yen became almost parabolic near the market lows as investors became overly pessimistic. As investors unwind their Swiss franc and Japanese Yen positions they are demonstrating their new found appetite for risk and desire for stocks. Figure 5 shows the Yen has already broken down and turned its trend lower and figure 3 shows how that may soon happen in the franc. The unwinding of these positions clearly tell us that investors now believe that he market has made its bottom and is ready for a substantial climb. (more below)
Figure 2 chart by genesisft.com
Figure 3 chart by genesisft.com
Figure 4 chart by genesisft.com
Figure 5 chart by genesisft.com The last market I want to study is the VIX. Excessive volatility is typical of a market bottom, and the recent VIX reading reached a bullish extreme. A stock market climb will only occur if the VIX can fall substantially lower which it now looks to be doing. As you can see in figure 6, the 200 day moving average has been a very strong support for the VIX, the VIX hitting that level has coincided with recent market tops as shown by the vertical lines. Friday showed a close below that line and taking out Friday’s low will likely confirm a more substantial fall in the VIX and coincident climb in the market.
Figure 6 chart by genesisft.com As well, the Larry Williams synthetic VIX which was discussed this past January, has crossed below its upper Bollinger band (figure 7) and is signifying an unwinding of volatility and a likely market bottom. Recent occurrences are shown with yellow highlights – I think it speaks for itself. Do not let fear or greed guide you, rather let the markets tell you what they will do. With transports climbing, the franc, yen and VIX falling, the markets are screaming that the correction in stocks are over and good times are to come. Be fearful when you are greedy, and be greedy when you are fearful.
Figure 7 chart by genesisft.com --------------------------------------------------------------------------------------------------------------------------------- Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Monday, 21 April 2008 ) |
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